Facebook Revenue Strong, Despite Facial Recognition Suit

Facebook’s revenue rose 25 percent to $2.11 billion for the quarter, beating analysts’ expectations of $20.9 billion. Its 2019 revenue rose almost 27 percent, with Q4 profits a 7 percent lift to $7.35 billion. The company reported that, even as expenses grew, its user base grew 9 percent from a year earlier to 1.66 billion, topping FactSet’s prediction of almost 1.65 billion. Not all is rosy, however: Facebook agreed to pay $550 million to settle an Illinois class-action lawsuit over use of its facial recognition technology.

The Wall Street Journal reports that, “the results extended strong performance that has become almost a given for the company even as its executives confront thorny social questions and mounting government scrutiny.”

“It’s going to be an intense year with the election, some of our long-term technology bets are going to start coming to fruition,” said Facebook chief executive Mark Zuckerberg.

Among Facebook’s challenges is Q4 revenue that, according to FactSet, “grew at the slowest pace in Facebook’s history as a listed company” as well as a 42 percent operating margin, compared to 46 percent a year ago. Although Facebook’s “quarter-over-quarter expenses shrunk as a share of revenue,” its stock fell more than 7 percent in after-hours trading on Wednesday. Those shares had “risen nearly 80 percent through Wednesday’s close, which was a record high since a sharp decline over the second half of 2018.”

In light of criticisms and scrutiny of its privacy practices among other issues, Zuckerberg stated, “my goal for the next decade isn’t to be liked but to be understood.” He defended many of the practices and plans under attack, including targeted advertising and product integration.

Facebook chief financial officer David Wehner predicted “some weakening of revenue in the current quarter,” with growth decreasing by “a low to mid-single-digit percentage point” compared with the Q4 rate. With 2.26 billion people using at least one of its services daily, “the company’s strong performance overall comes despite its struggles to advance new business objectives on a number of fronts.”

The New York Times reports on another issue confronting Facebook: rising legal costs, more specifically its agreement to pay $550 million to settle the Illinois class-action suit stemming “from Facebook’s photo-labeling service, Tag Suggestions, which uses face-matching software to suggest the names of people in users’ photos.”

The suit accused Facebook of violating “an Illinois biometric privacy law by harvesting facial data for Tag Suggestions from the photos of millions of users in the state without their permission and without telling them how long the data would be kept.” Although, as NYT notes, “the sum amounted to a rounding error for Facebook,” Wehner told investors “that the settlement added to the social network’s rising general and administrative costs, which increased 87 percent from a year ago.”

NYT adds that Illinois’ successful suit, “illustrates the protections that strong state laws may offer consumers.” Illinois enacted this most comprehensive stand-alone biometric privacy law in 2008. Electronic Privacy Information Center executive director Marc Rotenberg said, “The Illinois law has real teeth.” “Tech firms and other companies that collect biometric data must be very nervous right now,” he suggested.

Last week, the Supreme Court denied Facebook’s appeal.